Unit 3:

Fundamentals of Options Contract

Sample Problems to be Solved in Class
Problems on Terminal Value of Call Option and Gain or Loss on Call
Option from Option Buyers Perspective.
1. Assume that the price of a share of Maruti Udyog stock is INR
1,470 on January 1 and there is a call option with maturity in
January with a maturity date of January 31 and an exercise price
of INR 1,500. The call option is selling at INR 84.75. The Spot Price
on Jan 31 of Maruti Udyog is given Below. You are to fill up the
table stating if you would exercise the Call Option. Calculate the
terminal value of the Option and the Gains/Losses to the buyer
of such an Option.
Spot Is the Action Terminal Premium Gain/Loss
Price Option (Exercise/Do Option Paid
on ITM, Not Value
January ATM Exercise)
31 or
OTM?
1340
1380
1420
1460
1500
1540
1580
1620
1650

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 1

2. Assume that the price of a share of Adani Ports and SEZ stock is
INR 945 on September 1 and there is a call option with maturity
in January with a maturity date of January 31 and an exercise
price of INR 1020. The Lot Size is 1250 Shares. The Spot Price of
Adani Ports and SEZ is given Below. The Call Option is selling at
45. You are to fill up the table stating if you would exercise the
Call Option. Calculate the terminal value of the Option and the
Gains/Losses to the buyer of such an Option.
Spot Is the Action Terminal Premium Gain/Loss
Price Option (Exercise/Do Option Paid
on ITM, Not Value
January ATM Exercise)
31 or
OTM?
1000
1120
1050
920
960
1025
1080
1075
1060

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 2

3. Assume that the price of a share of Infosys stock is INR 1,400 on
January 1 and there is a call option with maturity in January with
a maturity date of January 31 and an exercise price of INR 1550.
The Lot Size is 300 Shares. The Spot Price of Infosys is given
Below. The Call Option is selling at 30. The Call Option is selling
at 45. The Lot Size is 300 Shares. The Spot Price of Infosys is given
Below. You are to fill up the table stating if you would exercise
the Call Option. Calculate the terminal value of the Option and
the Gains/Losses to the buyer of such an Option.
Spot Is the Action Terminal Premium Gain/Loss
Price Option (Exercise/Do Option Paid
on ITM, Not Value
January ATM Exercise)
31 or
OTM?
1440
1475
1490
1600
1650
1680
1580
1675
1700

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 3

Problems on Terminal Value of Call Option and Gain or Loss on Call
Option from Option Sellers Perspective.
1. Consider the case of writing call options on Cipla shares. Each
option is based on 1,250 shares of Cipla. Assume that on July 1,
the Cipla share price is INR 270 and you are writing a call option
with an exercise price of INR 300 and an exercise date of
September 28. The option premium for this call option is INR
6.40. Calculate the terminal value of a Written Call and the
gains/loss to an Option Writer

Spot Price on Terminal Premium Gain/Loss to

September 28 Option Received Call Writer
Value
230
250
270
290
300
310
330
350
370

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 4

2. Assume that the price of a share of Maruti Udyog stock is INR
1,470 on January 1 and there is a call option with maturity in
January with a maturity date of January 31 and an exercise price
of INR 1,500. The call option is selling at INR 84.75. Calculate the
terminal value of the Option and the Gains/Losses to the seller
of such an Option.

Spot Price on Terminal Premium Gain/Loss to

September 28 Option Received Call Writer
Value
1340
1380
1420
1460
1500
1540
1580
1620
1650

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 5

3. Assume that the price of a share of Infosys stock is INR 1,400 on
January
1 and there is a call option with maturity in January with a
maturity date of January 31 and an exercise price of INR 1550.
The Lot Size is 300 Shares. The Spot Price of Infosys is given
Below. The Call Option is selling at 45. Calculate the terminal
value of the Option and the Gains/Losses to the Seller of such an
Option
Spot Price on Terminal Premium Gain/Loss to
September 28 Option Received Call Writer
Value
1440
1475
1490
1600
1650
1680
1580
1675
1700

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 6

Problems on Terminal Value of Put Option and Gain or Loss on Put
Option from Option Buyers Perspective.
1. Assume that the price of Tata Motor stock is INR 490 on January
1 and there is a put option with a maturity of 90 days and an
exercise price of INR 520. The contract size for a Tata Motor put
option is 850. The Put Option is selling at INR 78.40. You are to
fill up the table stating if you would exercise the Put Option,
Calculate the Terminal Value of the Put Option and Calculate the
gains or losses on the Put option from a Buyers Perspective

Spot Is the Action Terminal Premium Gain/Loss

Price on Option Option Paid
Expiry ITM, Value
ATM or
OTM?
440
460
480
500
520
560
580
600
620

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 7

2. Assume that the price of a share of Maruti Udyog stock is INR
1,470 on January 1 and there is a put option with maturity in
January with a maturity date of January 31 and an exercise price
of INR 1,500. The put option is selling at INR 84.75. The Spot Price
on Jan 31 of Maruti Udyog is given Below. You are to fill up the
table stating if you would exercise the Put Option. Calculate the
terminal value of the Option and the Gains/Losses to the buyer
of such an Option.
Spot Is the Action Terminal Premium Gain/Loss
Price on Option Option Paid
January ITM, Value
31 ATM or
OTM?
1340
1380
1420
1460
1500
1540
1580
1620
1650

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 8

3. Assume that the price of a share of Infosys stock is INR 1,400 on
January 1 and there is a Put option with maturity in January with
a maturity date of January 31 and an exercise price of INR 1550.
The Lot Size is 300 Shares. The Spot Price of Infosys is given
Below. The Put Option is selling at 30. The Put Option is selling
at 45. The Lot Size is 300 Shares. The Spot Price of Infosys is given
Below. You are to fill up the table stating if you would exercise
the Put Option. Calculate the terminal value of the Option and
the Gains/Losses to the buyer of such an Option.
Spot Is the Action Terminal Premium Gain/Loss
Price on Option Option Paid
January ITM, Value
31 ATM or
OTM?
1440
1475
1490
1600
1650
1680
1580
1675
1700

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 9

Problems on Terminal Value of Put Option and Gain or Loss on Put
Option from Option Sellers Perspective.
1. Assume that the price of Tata Motor stock is INR 490 on January
1 and there is a put option with a maturity of 90 days and an
exercise price of INR 520. The contract size for a Tata Motor put
option is 850. The Put Option is selling at INR 78.40. Calculate
the Terminal Value of the Put Option and Calculate the gains or
losses on the Put option from an Option Writers Perspective

Spot Terminal Premium Gain/Loss

Price on Option Received
Expiry Value
440
460
480
500
520
560
580
600
620

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 10

2. Assume that the price of a share of Maruti Udyog stock is INR
1,470 on January and there is a put option with maturity in
January with a maturity date of January 31 and an exercise price
of INR 1,500. The put option is selling at INR 84.75. The Spot Price
on Jan 31 of Maruti Udyog is given Below. Calculate the terminal
value of the Option and the Gains/Losses to the seller of such an
Option.

Spot Terminal Premium Gain/Loss

Price on Option Received
January Value
31
1340
1380
1420
1460
1500
1540
1580
1620
1650

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 11

3. Assume that the price of a share of Infosys stock is INR 1,400 on
January 1 and there is a Put option with maturity in January with
a maturity date of January 31 and an exercise price of INR 1550.
The Lot Size is 300 Shares. The Spot Price of Infosys is given
Below. The Put Option is selling at 45. The Lot Size is 300 Shares.
The Spot Price of Infosys is given Below. You are to fill up the
table stating if you would exercise the Put Option. Calculate the
terminal value of the Option and the Gains/Losses to the seller
of such an Option.

Spot Terminal Premium Gain/Loss

Price on Option Received
January Value
31
1440
1475
1490
1600
1650
1680
1580
1675
1700

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 12

Problems of Margin Calculation for Writers of Call and Put Option
1. On March 1, call options are available on SBI shares with expiry
on March 27 and exercise price of INR 2,600. SBI shares are
priced at INR 2,500 on March 1. The contract size for SBI options
is 132. Ravi writes 10 call options and the option premium is INR
170. Option premium, upside theoretical price and downside
theoretical price for SBI call option on March 1, March 2, and
March 3 are given below.
Upside Prices: Rs. 74, 82 and 88 Respectively for Days from
March 1st to March 3rd.
Downside Prices: Rs. 67, 74 and 79 Respectively for Days from
March 1st to March 3rd.
Calculate premium margin, risk margin, and total margin for the
three days
2. Call options are available on the Bank Nifty index on September
1 with expiry on September 24. The value of the Bank Nifty index
on September 1 is 7,377.20. The option premium is INR 153 for
the Bank Nifty call option with an exercise price of 7,600. You
write five options. The Contract Multiplier is 50 for Bank Nifty
Index. Calculate premium margin, risk margin, and total margin
for the 5 days of the contract. Option premium, upside
theoretical price and downside theoretical price is given Below

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 13

 3. Put options are available on the Bank Nifty index on September
1 with expiry on September 24. The value of the Bank Nifty index
on September 1 is 7,377.20. The option premium is INR 361 for
the Bank Nifty Put option with an exercise price of 7,600. You
write one option. The contract multiplier is 50 for Put Options.
Calculate premium margin, risk margin, and total margin for the
5 days of the contract. Option premium, upside theoretical price
and downside theoretical price is given Below

Problems on Call and Put Options

1. SBI shares are selling on January 1 at INR 2,500. Call options are
available on SBI shares with expiry on January 29 and strike price
of INR 2,600. These options are priced at INR 70. The contract
size is 132.
(i) At what share price on January 29 would you exercise
these call options?
(ii) Would you exercise these call options if the share
price on January 17 is INR 2,640?
(iii) Calculate the terminal value of these call options (in
terms of per share) for SBI share prices of INR 2,400,
INR 2,500, INR 2,600, INR 2,700 and INR 2,800.
(iv) Calculate the gains and losses for the call buyer if SBI
share prices of INR 2,400, INR 2,500, INR 2,600, INR
2,700, and INR 2,800.

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 14

 (v) Calculate the gains and losses for the call writer if SBI
share prices of INR 2,400, INR 2,500, INR 2,600, INR
2,700, and INR 2,800.
2. On July 1, call and put options are available on the CNX Nifty
index with expiry on September 30. Th e exercise price of this
option is INR 4,200. The call option is priced at INR 120 and the
put option is priced at INR 220. On July 1, the CNX Nifty index is
at 4,080. The lot size is 50.
I. If on September 30, the value of the CNX Nifty index is
4,260, what will be the gain or loss for the call option
buyer?
II. If on September 30, the value of the CNX Nifty index is
4,260, what will be the gain or loss for the put option
buyer?
III. If on September 30, the value of the CNX Nifty index is
4,260, what will be the gain or loss for the call option
writer?
IV. If on September 30, the value of the CNX Nifty index is
4,260, what will be the gain or loss for the put option
writer?
V. On September 12, the CNX Nifty index is at 4,220 and
the call option is selling at INR 135. Calculate the
Intrinsic Value and Time Value of the Call option
VI. Can you exercise the call option on the CNX Nifty index
on September 12 when the index is at 4,220?

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 15

3. A State Bank share is selling at INR 2,500 on January 1. It has a
put option with maturity on March 31 with an exercise price of
INR 2,700. Th is option is selling for INR 160.
a. On February 14, the State Bank share price is INR 2,540.
What is its intrinsic value? Is the option in-the money?
Would you exercise this option on February 14? Explain.
b. On February 14, the State Bank share price is INR 2,820.
What is its intrinsic value? Is the option in-the money?
Would you exercise this option on February 14? Explain.
4. On September 1, call options are selling at INR 70 on ICICI Bank
shares with an exercise price of INR 800 and an exercise date of
October 31. ICICI Bank shares are selling at INR 750 on
September 1. The ICICI option contract size is 350 shares.
a. If the share price of ICICI Bank is INR 860 on October 31,
what will be the gain or loss for the call option buyer?
b. If the share price of ICICI Bank is INR 860 on October 31,
what will be the gain or loss for the call option writer?
c. On September 30, the share price of ICICI Bank is INR 840
and the call option is selling at INR 135. What is the intrinsic
value of the call option and the time value of the call
option?
d. Can you exercise the call option on ICICI stock on
September 30 when the shares of ICICI Bank are selling at
INR 840?
6. On September 1, put options are selling at INR 140 on ICICI Bank
shares with an exercise price of INR 800 and an exercise date of
October 31. ICICI Bank shares are selling at INR 750 on
September 1. The ICICI Bank option contract size is 350 shares.
a. If the share price of ICICI Bank is INR 860 on October 31,
what will be the gain or loss for the put option buyer?
b. If the share price of ICICI Bank is INR 860 on October 31,
what will be the gain or loss for the put option writer?

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 16

 c. On September 30, the share price of ICICI bank is INR 700
and the put option is selling at INR 165. What is the intrinsic
value of the put option and the time value of the put
option?
d. Can you exercise the put option on ICICI stock on
September 30 when the shares of ICICI Bank are selling at
INR 700?
Problems on Black and Scholes Model
1. Assume that Tata Motors stock is currently selling for INR 750.
There is a call option on Tata Motors with a maturity of 90 days
and an exercise price of INR 800. The volatility in the stock price
is estimated to be 22%. The risk-free rate 8%. What will be the
price of a call option that has a maturity of 90 days?
2. Assume that on June 1, Tata Steel is selling at INR 488.95 and
there is a call option on this stock expiring on June 29 with an
exercise price of INR 500. The risk-free rate is 12%, and the
volatility of the stock is estimated as 25%. Calculate the price of
the call according to the Black–Scholes formula. Assume the
time to maturity to be 28 days.
3. Calculate the price of a put for the Tata Steel stock with a stock
price of INR 488.95, exercise price of INR 500, time to maturity
of 28 days, and a volatility of 25% at a risk-free rate of 12%
4. The contract size of Bank of India options is 950. Bank of India
shares are selling at INR 338 on September 1. Call options and
put options are available with expiry on October 29 and with an
exercise price of INR 350. It is estimated that the standard
deviation of the stock price is 30%. The risk-free rate is 9%. By
using the Black–Scholes options pricing model, calculate the put
option price on September 1. Assume time to expiry to be 58
days.

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 17

Problems on Put-Call Parity
1. Assume that an SBI share is currently trading at INR 2,300. There
is also a call option and a put option on the SBI with an exercise
price of INR 2,400 and with a maturity of 90 days. The call option
is priced at INR 165. The ninety-day risk-free rate is 8% per
annum. Calculate the price of the put option.
2. The S&P CNX Nifty index is at 4,623.25 on September 1. There
exist call options and put options on the S&P CNX Nifty index
with expiry on September 24. The exercise price of both the call
and the put is INR 5,000. The call is priced at INR 32.9. According
to put–call parity, what should be the put price on the basis of
the assumption that the call is fairly priced? The risk-free interest
rate is 8%.
3. The BEML option lot size is 375. Its share price as on September
1 is INR 1,111.35. A put option with the exercise date of
November 26 and an exercise price of INR 1,140 is priced at INR
116.15. If put–call parity holds, what will be the price of the call
option with the exercise date of November 26 and an exercise
price of INR 1,140?

FUNDAMENTAL OF OPTIONS CONTRACT – FDRM – BBA UNIT 3 18